TO: Mayor and City Council
FROM: Philippe Eskandar, City Manager
BY: Philippe Eskandar, City Manager
Hillary Guiola-Leon, Finance Director
DATE: February 11, 2026
SUBJECT: CONSIDERATION OF RESOLUTION 26-04 DECLARING A
FISCAL EMERGENCY; CALLING AND GIVING NOTICE OF A
SPECIAL ELECTION TO BE HELD ON JUNE 2, 2026; AND
SUBMITTING ONE BALLOT MEASURE TO THE VOTERS TO
CONSIDER AMENDING THE SAN MARINO CITY CODE TO
ADD A NEW ARTICLE 05 (“TRANSACTION AND USE TAX”
TO CHAPTER XXVI, TO ESTABLISH A ONE-PERCENT
TRANSACTION AND USE GENERAL TAX); AND
DESIGNATING INDIVIDUALS TO SUBMIT PRIMARY AND
REBUTTAL BALLOT ARGUMENTS IN FAVOR OF THE
BALLOT MEASURE
STRATEGIC PLAN CRITICAL SUCCESS FACTORS
Fiscally Responsible and Transparent City Government
Efficient, Responsive, and Effective City Services
BACKGROUND
During the City Council meeting on November 12, 2025, the Council heard and discussed a presentation of the fiscal challenges facing the City in order to continue delivering critical public services to the community. The presentation identified the efforts taken by the City over the past several years to decrease costs and increase revenue; however, the five-year forecast presented during that meeting identified ongoing structural deficits unless additional steps are taken by the City. One of the remedial actions identified Tony Chou, Mayor
Calvin Lo, Vice Mayor
Hunter Chang, Council Member
John Chou, Council Member
Gretchen Shepherd Romey, Council Member
during that November 12th meeting, to address the City’s fiscal structural deficit, was to consider placing a one cent Transaction and Use Tax (“TUT”) on the ballot for the voters’ consideration at the election to be held on June 2, 2026.
Based on direction from City Council at that November 12th meeting, City staff prepared the attached recommended resolution for Council’s consideration.
Upon Council’s approval of the attached resolution by a 2/3 vote, the City will submit a ballot measure for the election on June 2, 2026, that will provide the voters an opportunity to approve (by a majority vote of 50% +1) a local “general tax” measure for a one-percent TUT to raise approximately $1,651,000 annually to fund critical city services to support the community.
DISCUSSION
The Fiscal Emergency Supports the Timing of the Election on June 2, 2026, for the Voters to Consider Approval of the Proposed Sales Tax When a city places a proposed tax measure on the ballot for voter consideration, the tax is categorized as either a “special tax” (for which the revenue must be spent on specified public services or facilities identified in the tax measure) or a “general tax” (for which the revenue may be spent for any general government purpose). A special tax requires approval by a 2/3 vote of the electorate, while a general tax requires 2/3 approval from the City Council and majority approval from the voters. As a general rule, a general tax is presented to the voters at a general municipal election (at the same election when voters consider approval of candidates for City Council).
However, the City has the authority to schedule voter consideration of a general tax at a different time (e.g., at a special election on June 2, 2026) if the City Council declares by unanimous vote there is an emergency.
The attached resolution documents the factual basis to support the City Council’s declaration of a fiscal emergency, to support placing the general tax measure on the ballot for the special election on June 2, 2026. In general, the resolution incorporates the presentation to the City Council on November 12, 2025, and that presentation describes and documents support for the conclusion that the imminent structural deficit facing the City comprises an emergency that must be addressed prior to the next general election scheduled for November 3, 2026. Therefore, the emergency declaration incorporated in the attached resolution supports the presentation of the proposed TUT to the voters at the election on June 2, 2026.
General Fund Fiscal Challenges
The City is facing significant and ongoing fiscal challenges as presented to the City Council in the latest General Fund financial forecast on November 12, 2025. As a part of the FY 2025-26 budget process, several budget reduction actions were taken as a result of the fiscal challenges including eliminating the City’s Aquatics programs, freezing positions within the Police Department, and the reprogramming of restricted revenues to name a few. Furthermore, as presented on November 12, 2025, the City’s General Fund Five-Year Financial Forecast indicates that operating expenditures are projected to grow faster than operating revenues, resulting in annual operating deficits ranging from approximately $788,000 in FY 2026-27 to more than $1,350,000 in FY 2030-
31. Below are significant assumptions used in the forecast:
• Renewal of the Utility User’s Tax upon its expiration on March 31, 2027; • Renewal of the Public Safety Parcel Tax upon its expiration in FY 2028- 29;
• All CalPERS required pension costs paid in full each year; • 5% annual increase in Public Safety Parcel Tax;
• Annual Sewer operating costs funded through Sewer Service charges; and • Property Tax Growth Rate of 4% per year
Without new revenue streams, the City will not be able to continue funding the same level of service.
In addition to these operating challenges, the City currently also has approximately $46.8 million in known unfunded capital improvement needs citywide putting additional pressure on the General Fund.
Roadmap to Fiscal Stability
During the FY 2024-25 budget cycle, the City Manager outlined a roadmap to fiscal stability which has continued to be presented to the City Council and community. The following actions have been implemented since then:
• The passage of the Public Safety Parcel Tax (Measure SM) by voters in the November 2024 Election
• Updated User Fee Study to help recover costs of providing services • Various one-time budget-balancing efforts have been implemented during FY 2024-25 and FY 2025-26 budget cycles:
o The sale of excess Proposition A funds to the City of Pasadena; o Reallocation of COPS funds to better support Police Department operations;
o Freezing two (2) vacant positions in the Police Department (One Police Officer and one part time Cadet for a temporary savings of $200,000);
o Funded Capital Projects with existing capital reserves; and o Conducted a Sewer Rate Study and implemented a Sewer
Service Charge to fund 25% of estimated capital improvements needed
One of the initiatives to help the city get closer to achieve fiscal stability is to maintain local control of sales tax dollars. Based on projections, a 1% TUT can generate $1,651,000 annually in addition to the sales tax the City already receives.
The Proposed Transaction and Use Tax of One-Percent is in Addition to the Existing “Sales Tax” in the City of 9.75 Percent The general public typically considers both the “sales and use tax” and any “transaction and use tax” as the same “sales tax,” since both taxes are regularly combined and labeled that way by the retailers that impose them (on the sale of goods). However, revenue from the “Sales and Use Tax” (“SUT”) is generally capped at 7.25 percent, and its revenue is heavily regulated by the State; while revenue from any “Transaction and Use Tax” (“TUT”) is based on a local ballot measure proposed by a local government, subject to voter approval, and the corresponding expenditure of revenue from a TUT is subject to local control of the governing body of the local government (i.e., the City Council) to provide public services and facilities that serve the local community.
The State limits the total amount of any transaction and use tax imposed by any local agency (whether a county, a city, or a special district), and that amount varies by jurisdiction throughout the State. In Los Angeles County, there is a maximum of 3.5% TUT for all local agencies with authority to impose a TUT within the City of San Marino. Thus, because the County of Los Angeles has previously approved five TUT ballot measures of 0.5% each, for a total TUT of 2.5%, all of which are imposed countywide (including within the City of San Marino), there remains only one-percent for a future TUT ballot measure before hitting the maximum of 3.5%. In other words, from the perspective of the general public, the current “sales tax” rate is 9.75% (the
7.25% SUT plus the 2.5% TUT); and, if the proposed one-percent future TUT is approved by the voters of the City of San Marino, there will be a total “sales tax” rate of 10.75% within the City.
On the one hand, the City has broad discretion to spend general fund revenue (such as a TUT general tax) to serve legitimate governmental purposes within the City’s authority to provide public services and facilities to the local community, subject to the obligation to conduct public meetings and hearings to consider public input when setting funding priorities through the annual budget process. However, the manner by which any TUT is imposed on taxpayers is heavily regulated by the State of California, through the California Department of Tax and Fee Administration (“CDTFA”). In fact, the proposed ordinance to implement the one-percent TUT (attached to this report) is dictated by CDTFA. City staff have already provided the City’s proposed TUT Ordinance to CDTFA for their review and received their approval.
City’s Planned Expenditures of TUT Revenue
If the proposed one-percent TUT is approved by the voters, it is estimated to raise approximately $1,651,000 annually. Since the proposed TUT is structured as a general tax, the City Council will be authorized to identify the public services and facilities to be funded with the tax revenue on an annual basis, in accordance with the City’s practices and requirements of obtaining public input through an ongoing annual series of public meetings and hearings, leading to the Council’s annual adoption of the City’s budget.
The City currently anticipates using TUT revenue for general governmental use such as operating and capital expenses including but not limited to those listed in the table below:
Expense Description Approximate 5 Year Cost
Sidewalk Replacement Program $2,672,085
Street Rehabilitation Program $21,728,737
Alley and Parking Lot Improvement Program $1,510,000
Stormwater Culvert Replacement Program $13,871,600
Library Flooring Repairs and Replacement $350,000
Procedures for Placing the TUT Measure on the Ballot
The recommended resolution would authorize submitting the ballot question to the County for inclusion on the ballot, as follows:
To maintain funding (that The State of California and Los Angeles County cannot take) exclusively for City of San Marino services including: repairing streets/sidewalks/alleyways/potholes and other City infrastructure, improving public safety, providing youth and senior programs, library and park maintenance and
enhancements, and general government use; shall the City of San Marino measure be adopted levying a 1 percent transaction and use tax, raising $1,651,000 annually, until ended by voters? Yes
No
The City Council will be provided an opportunity to authorize the preparation of a ballot argument in favor of the TUT measure; and the City Clerk will post a notice inviting the submission of ballot arguments for those who oppose the ballot measure. If the City Council submits an argument in favor of the measure, and any person submits an argument opposed to the measure, the City Council may also authorize the submission of a rebuttal to the argument opposed to the measure. Similarly, the person who submits an argument opposed to the measure will have an opportunity to submit a rebuttal to the argument in favor of the measure. In general, the initial arguments (in favor and opposed) are limited to 300 words, and rebuttal arguments are limited to 250 words. The City Clerk’s notice will identify the timing of submission of ballot arguments; in general, the primary arguments are filed within 14 days of the calling of the election, and rebuttal arguments are filed within 10 days of filing the primary arguments.
In addition to the ballot arguments in favor and opposed, the City Attorney will be directed to prepare an impartial analysis of the ballot measure of no more than 500 words.
Finally, the proposed Ordinance, pursuant to the California Constitution, Article XIIIB, will increase the appropriation limit for the City of San Marino by the maximum projected aggregate collection authorized by the levy of the TUT. While the TUT will remain in effect until ended by voters, this increased appropriation limit shall be in effect beginning in fiscal year 2026-2027 and ending in fiscal year 2029-2030 pursuant to California Constitution Article XIII B, Section 4.
Los Angeles County Sales Tax Concerns
In late January 2026, City staff were informed that the Los Angeles County Board of Supervisors intends to consider (at the Board’s February 10, 2026 meeting) a motion by Supervisor Holly Mitchell to weigh the placement of the County’s own, half cent (0.5%) sales tax on the June 2, 2026 election. Given this was only first discussed by the Board of Supervisors a few weeks ago, much is unknown about this proposed sales tax on the City’s own TUT efforts.
However, what this means for San Marino’s measure is that both the City and the County may be pursuing the same amount of money. As mentioned earlier in this report, under current state law, the maximum sales tax rate is 10.75% thus allowing San Marino to pursue the remaining 1%. With the state maximum in place, it is unknown how the state would administer two tax measures that are for the same limited amount of money should both pass.
Early indications from the County are that the Board of Supervisors will seek the passage of state legislation to exempt the County’s measure from the current sales tax caps. This would then allow both the County and the City’s measures to be effective should they pass. However, there is no guarantee that such state legislation would be signed into law.
While the viability of the County’s sales tax measure is unknown at the time of this report’s publication, their efforts speak to the importance of the City’ own measure. As staff have been indicating, the City’s TUT would allow the funds to stay in San Marino for San Marino focused services. Absent the City’s TUT, if the County’s TUT passes in its place, shoppers in San Marino would still be paying the new/additional tax, but San Marino would not see any of the direct dollar for dollar benefits.
FISCAL IMPACT & PROCUREMENT REVIEW
Staff have contacted the Los Angeles County Registrar-Recorder/County Clerk to obtain an estimate for them to conduct the election of the proposed ballot measure for San Marino. The cost to be paid to the County to hold the election is estimated to be approximately $57,500. Staff also anticipate a small cost for the production and distribution of education materials related to the City’s TUT efforts between $5,000 to $10,000. Should the City Council approve this item, staff will include the necessary budget adjustments to cover these costs in the Fiscal Year 2025-26 mid-year budget update report to be presented to the City Council in March.
LEGAL REVIEW
The City Attorney's office has reviewed and approved as to form.
RECOMMENDATION
Staff recommends that the City Council, by unanimous vote:
a) Designate the City Council to Submit the Primary Argument in Favor of the Ballot Measure, and the Rebuttal Argument to any Argument in Opposition to the Ballot Measure.
b) Approve Resolution No R-26-04, Declaring a Fiscal Emergency; Calling and Giving Notice of a Special Election to be Held on June 2, 2026, and Submitting One Ballot Measure to the Voters to Amend the San Marino City Code to Add a New Article 05 (“Transactions and Use Tax”) to Chapter XXVI, to Establish a One-Percent Transaction and Use General Tax; and Designating Individuals to Submit Primary and Rebuttal Ballot Arguments in Favor of the Ballot Measure.
ATTACHMENTS
1. Resolution No. R-26-04, Declaring a Fiscal Emergency; Calling and Giving Notice of a Special Election to be Held on June 2, 2026, and Submitting One Ballot Measure to the Voters to Amend the San Marino City Code to Add a New Article 05 (“Transactions and Use Tax”) to Chapter XXVI, to Establish a One-Percent Transaction and Use General Tax
2. Exhibit “A” to Resolution No. R-26-04, Ordinance No. O-26-1426 of the City of San Marino Amending the San Marino City Code to Add Chapter XXVI, Article 05 (Transactions and Use Tax) Imposing a Transactions and Use Tax to be Administered by the California Department of Tax and Fee Administration